Australia's wheat harvest will fall by more than 2m tonnes
next season thanks to a decrease in yield, officials said, although warning
that prospects for canola look most at risk from drought in eastern areas.

Abares, the official Australian commodities bureau, pegged the
domestic wheat crop for 2014-15 at 24.8m tonnes, down from a newly-completed
harvest of 27.0m tonnes.

Sowings will rise by 130,000 hectares, to a three-year high
of 13.6m hectares, in part at the expense of barley, for which plantings will fall
by the same amount.

However, the yield looks set to fall back from the strong
2.00 tonnes per hectare achieved in the latest harvest, lifted by timely rains
in Western Australia, the country's top grain-growing state.

"A small increase in the area planted to wheat is expected
to partially offset a fall in the average yield from the above average yield
achieved in 2013–14, assuming average seasonal conditions," Abares said.

'Critical few months'

In fact, weather in eastern Australia has been unusually dry,
causing "severe rainfall deficiencies" across much of Queensland, New South
Wales, South Australia and Victoria.

"Around two-thirds of Queensland has been drought declared
by the Queensland government," the bureau said, adding that wheat and sheep
areas were most affected in New South Wales, while in Victoria "dry conditions are
centred on the Mallee", an important grains-producing region.

Abares, which last month downgraded prospects for production
of summer crops such as sorghum,warned
on Tuesday that "seasonal conditions over the next few months will be critical
for… winter crop planting for the 2014–15 season" too, and in particular for
canola.

"Without sufficient rainfall to improve soil moisture, the
area planted to canola in eastern Australia would be adversely affected because
canola is more sensitive to soil moisture than other major winter crops, such
as wheat and barley," Abares said.

The bureau for now assumed Australian canola production will
fall by 500,000 tonnes below 3m tonnes in 2014-15 for the first time in four
years.

"Largely as a result of the forecast fall in production, the
volume of exports is forecast to decline by 32% to 2m tonnes."

'Greater competition'

The volume of wheat exports was seen rising next season, to
19.1m tonnes, a forecast "which largely reflects a drawdown in stocks carried
over from 2013-14", Abares said.

However, the bureau trimmed by 88,000 tonnes, to 18.5m tonnes,
its forecast for the country's wheat exports this season, and warned of strong
competition ahead too.

"Rising international grain production and exports will
result in greater competition for Australian grains and oilseeds exports
destined for Asia," Abares commodities analyst Neil Thompson said.

"Exports of grains and oilseeds from the Black Sea region
alone will increase to almost 80m tonnes by 2018-19, which is 20% higher than for
2013-14."